Korea Monetary Policy

Korea: Central Bank keeps interest rates unchanged

April 12, 2011

At the monetary policy meeting held on 12 April, the Bank of Korea (BoK) kept the BoK Base Rate unchanged at 3.00%, in a decision widely expected by the market. The decision marks a pause to the tightening cycle that began in July 2010 and saw the BoK raise the policy rate four times in nine months. Following the latest hike, the policy rate is at its highest level since November 2008. Annual headline inflation reached 4.7% in March and was above the BoK 3.0% 1.0 percentage point tolerance range for a third consecutive month. However, monthly figures showed a moderation in the pace of consumer price increases, as consumer prices added just 0.50% (February: +0.76% month-on-month), thus providing a case for a pause in the tightening cycle, according to market analysts. In a press briefing after the meeting, BoK Governor Kim Choong-soo stated that the Bank is determined to tighten monetary policy and once again confirmed that the BoK will do so gradually rather than raising rates abruptly. Accordingly, market analysts believe that the BoK will refrain from lifting interest rates at its next policy meeting on 13 May.

Industrial production in the mining, manufacturing, gas and electricity sectors decreased 6.0% in December compared to the same month last year, more than the revised 1.7% decrease in November (previously reported: -1.6% year-on-year).